REPORT TITLE:
Captive Insurance


DESCRIPTION:
Expands the definition of captive insurance company, creates five
classes of captive insurance companies with specified capital or
surplus requirements, and exempts newly authorized categories of
captive insurance companies from National Association of
Insurance Commissioners risk-based capital reports filing.
(HB1623 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1623
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO CAPTIVE INSURANCE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Chapter 431, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to article 19 to be appropriately
 
 3 designated and to read as follows:
 
 4      "�431:19-    Classes of captive insurance.  Each captive
 
 5 insurance company formed under this article shall be designated
 
 6 and licensed as one of the following classes of captive insurance
 
 7 companies:
 
 8      (1)  A class 1 company shall be limited to a pure captive
 
 9           insurance company that only writes business as a
 
10           reinsurer;
 
11      (2)  A class 2 company shall be limited to a pure captive
 
12           insurance company that is not a class 1 company;
 
13      (3)  A class 3 company shall be any company formed under
 
14           this article as an association captive insurance
 
15           company or a risk retention captive insurance company;
 
16      (4)  A class 4 company shall be a leased capital facility
 
17           formed under this article; and
 
18      (5)  A class 5 company shall be a reinsurance company that
 
19           is formed under this article for the primary purpose of
 

 
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 1           reinsuring liability, property, or life and health
 
 2           businesses, and that is not a class 1, class 2, class
 
 3           3, or class 4 company."
 
 4      SECTION 2.  Section 431:19-101, Hawaii Revised Statutes, is
 
 5 amended as follows:
 
 6      1.  By adding two new definitions to be appropriately
 
 7 inserted and to read:
 
 8      ""Leased capital facility" means a limited membership
 
 9 insurance company formed as a class 4 company under this article
 
10 that insures the risks of its members, but whose owner or owners
 
11 may, subject to approval of the commissioner, be persons or
 
12 entities other than the members.
 
13      "Reinsurance facility" means a company formed as a class 5
 
14 company under this article."
 
15      2.  By amending the definition of "captive insurance
 
16 company" to read as follows:
 
17      ""Captive insurance company" means any pure captive
 
18 insurance company, risk retention captive insurance company, [or]
 
19 association captive insurance company, leased capital facility,
 
20 or reinsurance facility formed or licensed under this article."
 
21      SECTION 3.  Section 431:19-104, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 

 
 
 
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 1      "�431:19-104  Minimum capital; letter of credit, security.
 
 2 (a)  [No pure captive insurance company, association captive
 
 3 insurance company, or risk retention captive insurance company]
 
 4 Subject to subsection (c), no captive insurance company
 
 5 incorporated as a stock insurer shall be issued a license unless
 
 6 it shall possess and thereafter maintain unimpaired paid-in
 
 7 capital of an amount established and deemed appropriate by the
 
 8 commissioner.  [The amount for pure captive insurance companies
 
 9 may differ from the amount for association captive insurance
 
10 companies and risk retention captive insurance companies.]
 
11      (b)  The capital may be in the form of cash, in the form of
 
12 an irrevocable letter of credit issued by a bank chartered by
 
13 this State or a member bank of the Federal Reserve System, or
 
14 other security approved by the commissioner. 
 
15      (c)  Minimum capital or surplus requirements for captive
 
16 insurance companies shall be as follows:
 
17      (1)  Class 1:  $100,000;
 
18      (2)  Class 2:  $250,000;
 
19      (3)  Class 3:  $500,000;
 
20      (4)  Class 4:  $1,000,000; and
 
21      (5)  Class 5:  $50,000,000.
 
22 The foregoing requirements do not limit the commissioner's
 
23 discretionary authority to require a captive insurance company to
 

 
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 1 possess and maintain a greater amount of capital or surplus in
 
 2 order to preserve the solvency of the company, nor do such
 
 3 requirements limit or diminish any other applicable provision of
 
 4 law that may require a captive insurance company to maintain a
 
 5 particular level of capital, surplus, assets, or investments."
 
 6      SECTION 4.  Section 431:19-105, Hawaii Revised Statutes, is
 
 7 amended by amending subsection (a) to read as follows:
 
 8      "(a)  [No captive insurance company] Subject to section
 
 9 431:19-104(c), no captive insurance company formed other than as
 
10 a stock insurer shall be issued a license unless it shall possess
 
11 and thereafter maintain a free surplus of an amount established
 
12 and deemed appropriate by the commissioner.  [The amount for pure
 
13 captive insurance companies may differ from the amount for
 
14 association captive insurance companies and risk retention
 
15 captive insurance companies.  The amount for association captive
 
16 insurance companies and risk retention captive insurance
 
17 companies incorporated as stock insurers may differ from the
 
18 amount for association captive insurance companies or risk
 
19 retention captive insurance companies formed as mutual or
 
20 reciprocal insurers.]"
 
21      SECTION 5.  Section 431:19-106, Hawaii Revised Statutes, is
 
22 amended by amending subsections (b) and (c) to read as follows:
 

 
 
 
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 1      "(b)  [An association captive insurance company, including a
 
 2 risk retention] A captive insurance company, which is other than
 
 3 a pure captive insurance company, may be:
 
 4      (1)  Incorporated as a stock insurer with its capital
 
 5           divided into shares and held by the stockholders;
 
 6      (2)  Incorporated as a mutual insurer without capital stock,
 
 7           the governing body of which is elected by the member
 
 8           organization of its association; or
 
 9      (3)  Organized as a reciprocal insurer, for other than
 
10           credit life and credit disability insurance and group
 
11           term life insurance, without capital stock, whose
 
12           affairs shall be coordinated through an attorney-in-
 
13           fact as provided in the power of attorney or other
 
14           agreement given to the attorney-in-fact by the
 
15           subscribers.
 
16      (c)  A captive insurance company other than one that is
 
17 formed as a reciprocal insurer shall have [not less] no fewer
 
18 than three incorporators of whom [not less] no fewer than two
 
19 shall be residents of this State."
 
20      SECTION 6.  Section 431:19-107, Hawaii Revised Statutes, is
 
21 amended by amending subsections (b) and (c) to read as follows:
 
22      "(b)  Each [association captive and risk retention] captive
 
23 insurance company that is not a pure captive insurance company
 
24 shall annually file with the commissioner the following:
 

 
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 1      (1)  Annual statement and audit:
 
 2           (A)  On or before March 1, or such day subsequent
 
 3                thereto as the commissioner upon request and for
 
 4                cause may specify, an annual statement using the
 
 5                National Association of Insurance Commissioners'
 
 6                annual statement blank plus any additional
 
 7                information required by the commissioner, which
 
 8                shall be a true statement of its financial
 
 9                condition, transactions, and affairs as of the
 
10                immediately preceding December 31.  The reported
 
11                information shall be verified by oaths of at least
 
12                two of the captive's principal officers;
 
13           (B)  On or before June 1, or such day subsequent
 
14                thereto as the commissioner upon request and for
 
15                cause may specify, an audit by a designated
 
16                independent certified public accountant or
 
17                accounting firm of the financial statements
 
18                reporting the financial condition and results of
 
19                the operation of the captive;
 
20           (C)  The annual statement and audit shall be prepared
 
21                in accordance with the National Association of
 
22                Insurance Commissioners' annual statement
 
23                instructions, following the practice and
 

 
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 1                procedures prescribed by the National Association
 
 2                of Insurance Commissioners' practices and
 
 3                procedures manuals.  Each risk retention group
 
 4                shall also comply with section 431:3-302; and
 
 5      (2)  On or before each March 1, or such day subsequent
 
 6           thereto as the commissioner upon request and for cause
 
 7           may specify, a risk-based capital report in accordance
 
 8           with section 431:3-402[.]; provided that class 3
 
 9           association captive insurance companies and class 4 and
 
10           class 5 captive insurance companies shall not be
 
11           required to file their risk-based capital reports with
 
12           the National Association of Insurance Commissioners.
 
13      (c)  The statements required to be filed in subsections (a)
 
14 and (b) shall include[,] but not be limited to[,] actuarially
 
15 appropriate reserves for:
 
16      (1)  Known claims and expenses associated therewith;
 
17      (2)  Claims incurred but not reported and expenses
 
18           associated therewith;
 
19      (3)  Unearned premiums; and
 
20      (4)  Bad debts, reserves for which shall be shown as
 
21           liabilities.
 
22 An actuarial opinion regarding reserves for known claims and
 
23 expenses associated therewith and claims incurred but not
 

 
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 1 reported and expenses associated therewith shall be included in
 
 2 the audited statements, except that the actuarial opinion for
 
 3 [association captive insurance companies and risk retention]
 
 4 captive insurance companies other than pure captive insurance
 
 5 companies shall be filed with the annual statement required under
 
 6 subsection (b), on or before March 1 each year.  The actuarial
 
 7 opinion shall be given by a member of the American Academy of
 
 8 Actuaries or other qualified loss reserve specialist as defined
 
 9 in the annual statement adopted by the National Association of
 
10 Insurance Commissioners."
 
11      SECTION 7.  Section 431:19-115, Hawaii Revised Statutes, is
 
12 amended by amending subsection (a) to read as follows:
 
13      "(a)  No insurance laws of this State other than those
 
14 contained in this article, or contained in specific references
 
15 contained in this section or article, shall apply to [pure
 
16 captive insurance companies, association captive insurance
 
17 companies, and risk retention] captive insurance companies[.]
 
18 formed under this article.
 
19      In addition to this article, article 1, article 2, part III
 
20 of article 3, article 4A, parts I and II of article 5, article 6,
 
21 article 11, and article 15 of this chapter shall apply to
 
22 [association captive insurance companies and risk retention]
 
23 captive insurance companies[,] other than pure captive insurance
 

 
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 1 companies, unless these other laws are inconsistent with this
 
 2 article or the commissioner by rule, regulation, or order
 
 3 determines, on a case by case basis that these other laws should
 
 4 not apply thereto.
 
 5      In addition to this article and the articles or portions
 
 6 thereof referenced in this section, chapter 431K shall apply to
 
 7 risk retention captive insurance companies licensed under this
 
 8 article."
 
 9      SECTION 8.  Section 431:19-116, Hawaii Revised Statutes, is
 
10 amended by amending subsection (b) to read as follows:
 
11      "(b)  Each [association captive insurance company licensed
 
12 to do business in this State and each risk retention] captive
 
13 insurance company chartered in this State as other than a pure
 
14 captive insurance company shall pay a tax of one per cent on
 
15 gross premiums for insurance written on all risks or property
 
16 resident, situated, or located within this State, and on risks
 
17 and property situated elsewhere upon which no premium tax is
 
18 otherwise paid during the year ending on the preceding
 
19 December 31, less return premiums and less any reinsurance
 
20 accepted.  The tax shall be due and payable on March 1 of each
 
21 year."
 
22      SECTION 9.  Act 190, Session Laws of Hawaii 1994, as amended
 
23 by Acts 61 and 232, Session Laws of Hawaii 1995, and as amended
 

 
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 1 by Act 358, Session Laws of Hawaii 1997, is amended by amending
 
 2 section 10 to read as follows:
 
 3      "SECTION 10.  This Act shall take effect on June 21, 1994;
 
 4 provided that on June 30, 2000, sections 1 through [4] 3 of this
 
 5 Act and section 431:2-307, Hawaii Revised Statutes, shall be
 
 6 repealed, and sections 431:3-302[,] and 431:5-307, [and 431:19-
 
 7 107,] Hawaii Revised Statutes, are reenacted in the form in which
 
 8 they read on June 20, 1994."
 
 9      SECTION 10.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 11.  This Act shall take effect upon its approval.